HOW TO RESTORE AUSTRALIA’S ECONOMIC PROSPERITY – DIMITRI BURSHTEIN

As Australians began to face continuing high inflation and concern over the economy in 2026, The Sydney Institute asked two economic “dries” to deliver papers on how to fix ongoing fiscal and monetary problems. On Monday 30 March 2026, Dimitri Burshtein – Financial services executive, economist, strategist, and commentator – joined Alex Sanchez – economist and former advisor to the Albanese Government – to give their evaluations of where policy decisions had gone wrong and strategies that might alleviate diminishing living standards.

HOW TO RESTORE AUSTRALIA’S ECONOMIC PROSPERITY

DIMITRI BURSHTEIN

Thank you Anne and Gerard, for the opportunity to speak here tonight. It is always a pleasure to be at The Sydney Institute, though in my case I am usually on the other side of the lectern.

I know that when I come to a Sydney Institute function, I will learn something new. So, I hope you find something of interest from Alex’s and my comments this evening. One of my favourite sayings, an ancient wisdom, is that there are three pathways to immortality: have a child, plant a tree, or write a book. Tonight, I would like to add a fourth: speak at The Sydney Institute.

For those unaware, Gerard maintains a speaker’s signature book, a tome that looks as if it were found wedged between the Dead Sea Scrolls and the Rosetta Stone, wrapped in the Shroud of Turin. It is filled with the signatures of prime ministers, premiers, ministers, captains of industry, artists, authors, foreign leaders, and thought leaders. Getting one’s name in that book is certainly a pathway to immortality. Along with the obligatory YouTube recording.

But to the proposition before us this evening: how to restore Australia’s economic prosperity. Implicit in the title of tonight’s presentations is that Australia is in economic decline. And while I do not want to start a debate about whether culture is upstream or downstream of economics, I believe that economic security influences much in our polity.

If people do not feel economically secure, that insecurity flows into society and social interactions, and ultimately into politics. This is why Australia’s economic erosion, the slow but sure erosion we are currently living through, is having so many pernicious effects.

Yes, Australia is one of the wealthiest countries in the world, but people’s sense of prosperity is both static and prospective. It is not just whether I feel prosperous today, but also whether I feel that I will be prosperous tomorrow.

So, for those who doubt that Australia is in economic decline and why people are feeling economically anxious, allow me to set the scene. I am not a politician. I trade in facts and evidence, not wishes and kisses. So here are some facts, several of which predate the current military action in Iran.

For the average Australian, they are poorer today than they were yesterday, and they will be poorer tomorrow than they are today. Australia has spent the better part of four years in a per-capita recession. Disposable incomes have experienced the largest drop of developed economies. Inflation is again resurging and was doing so well before the start of the Iran war. Government spending has hit records not seen outside of a global pandemic. In the last financial year, spending across all three tiers of government rose by 7.7 percent to just over one trillion dollars. This while the economy grew by only 1.3 percent. Government spending is now growing six times faster than the economy itself.

Arithmetically, for as long as government grows faster than the economy, it will take an ever-larger share of the national pie. The three tiers of Australian government now make up more than 44 percent of GDP, up from 41 percent the previous year. And when you add in the various off-budget activities designed to hide spending, and what I call the because-of-government sector, being the private sector lawyers, accountants, planners, consultants, lobbyists, and compliance officers who exist purely because of the avarice of government, I would contend that more than half of our economy is government-driven.

So, given that government is more than half of Australia’s economy, at what point do we stop calling Australia a free market economy and start calling it a centrally planned command economy?

But to where are all our taxes going? To many unnecessary places, including an ever-growing middle-class welfare system and the cost of administering government itself. The two fastest-growing items in the budget are the NDIS and interest payments on debt. There are promises of more spending on defence, but so far, they remain just that: promises. And then there are elections where politicians believe it is necessary to bribe us with our own money.

Meanwhile, over the past 20 years, electricity prices have gone from among the lowest in the developed world to among the highest. This has significantly distorted the Australian economy and contributed to a fundamental restructuring of its foundations, with a shift from market sector jobs to non-market sector jobs: broadly from the private sector to the government and government-financed sectors such as the so-called care economy.

In the past two years, about 650,000 new jobs, roughly 80 percent of the total created, were in the non-market sector. Energy policy, the mass expansion of government and government-funded sectors, and a mass expansion of regulation have together acted to suppress the Australian economy by preventing, and in some cases reversing, productivity growth. Productivity, the key engine of economic prosperity, has fallen to a sixty-year low. This has been a significant factor in Australian households experiencing the sharpest fall in disposable income in the entire OECD.

In just two years, real incomes have dropped by more than 8 per cent from their mid-2022 peak, wiping out years of gains and taking purchasing power back to 2017 levels. Australia’s living standard performance is the worst in the developed world. While living standards across the OECD have grown by 5 per cent on average since 2022, Australia’s has shrunk by 7 per cent. Australia is on a path to economic and social decline. So how do we reverse it?

It starts and ends with productivity, which is defined as the ratio of inputs to outputs, which is going nowhere or even backwards fast. Do not believe the story often repeated by politicians and bureaucrats that slowing productivity is a global problem. It is not. Productivity is rising in the United States and across Asia. The problem is European, and Australia has adopted European habits.

In a speech in 2023, Italian Prime Minister Giorgia Meloni pointed out that Europe’s share of global GDP had fallen from 26.5 per cent to 16.1 per cent over 35 years, even as the EU expanded from 12 to 27 member nations. Meanwhile, the United States held steady at 26 per cent, and China leapt from 1.8 to 18 per cent. Meloni’s explanation was simple and stark: America innovates. China replicates. Europe regulates.

The European Union has literally declared that it wants to be a regulation superpower, an economic objective almost as ridiculous as aspiring to be a clean energy superpower. But Australia has not simply replicated Europe’s affinity for regulation. Australia has selectively taken the worst of Europe: industrial policy, speech suppression, and energy market destruction.

In the meantime, the only things that appear to focus the minds of our politicians are tax increases, defending their parliamentary entitlements, and fixed four-year terms. This is not a Labor government issue. This is an Australian government issue. It is bipartisan, quint-partisan if you add the Greens, the Teals, and One Nation.

So, what to do?

When American economist Thomas Sowell was asked how to reduce poverty among young Black Americans, he replied simply: stop implementing government policies that keep them poor. Applying that same logic, to restore Australia’s prosperity, governments should stop implementing policies that destroy prosperity. Perhaps even reverse some. It is as simple as that.

The list of prosperity-destroying policies clogging the Australian economy is long, very long. And the rot did not begin with the Albanese government, but around the turn of the millennium, under the Howard government. Heresy, perhaps, in this room. But many of the tax and regulatory problems of today had their genesis under the Howard government. And while the Howard government ended 18 years ago, the weeds of economic discontent planted have been well-watered and fertilised by subsequent Labor and Coalition governments alike, some of which have been real doozies.

As a rule of thumb when it comes to destructive government policies, if it has the word “National” in the title, it will be a debacle. The National Disability Insurance Scheme. The National Broadband Network. The National Curriculum. The National Housing Finance and Investment Corporation. The National Energy Transition Authority. The National Cabinet. But the National Reconstruction Fund is possibly the most disgraceful example of central planning griftery I have witnessed in my lifetime. Fifteen billion dollars of taxpayer money to throw at businesses that offer the best photo opportunities and have the best lobbying operations.

Two of the Fund’s more recent investments were into Hong Kong owned Patties Food Group, maker of Four’n Twenty pies, and into US owned Arnott’s, maker of such national security priorities as Tim Tams and Sao biscuits. To this we can add a $200 million investment announced this month into ASX-listed Macquarie Telecom to build data centres, because the dozens of data centres currently under development without government support apparently signals that this is an area demanding government assistance.

Meat pies. Chocolate biscuits. Data centres. Sovereign capability these are not.

But did you hear anything from the Coalition on this abuse of public resources? No. Because across the major parties, a renewed consensus has quietly solidified. Australia must make things. Anything. Manufacturing is the new orthodoxy, and industrial complexity can be used to explain any economic idiocy.

Politicians tell voters that if the government simply subsidises the right industries, the nation can climb up the economic ladder and out-compete the world. It is the kind of thinking that sounds sophisticated until one realises it has already been tried and failed, repeatedly, all over the world.

There is nostalgia at work, a misty-eyed longing for the hum of factory floors. The thunder of V8s rolling off production lines. Simpson washing machines and Kelvinator fridges. Politicians sighing wistfully about the 1950s, 1960s, and 1970s as if those decades represent some golden template that modernity recklessly discarded.

And on top of picking industries, Australian government now wants to be a hedge fund manager. There are currently fifteen off-budget funds run by the federal government overseeing well over $400 billion of taxpayer money. This includes seven, I repeat, seven, Future Funds, and eight Special Investment Vehicles including the Clean Energy Finance Corporation, the Australian Renewable Energy Agency, and the Regional Investment Corporation. All are staffed by public servants on bloated salaries, several in the millions, sitting in high-rent offices, flying around in business class, all on the taxpayer coin. These funds are the epitome of crony capitalism, and notably, these are structures not replicated anywhere else in the world. And do not think this is purely a federal phenomenon. Several states also have these investment playthings so that politicians can play fund manager with yours, mine, and our children’s money. NSW does it. Queensland does it. Victoria does it.

This month marked the 250th anniversary of the publication of Adam Smith’s The Wealth of Nations. Smith, and subsequent history, showed repeatedly that prosperity comes not from powerful and active government, but from small, efficient government with low taxes, minimal regulation, and the rule of law. Large, centralised governments serve only the nomenklatura. Socialist planning principally benefits the planners. Big business thrives under big government, using regulation to entrench itself and kill off competition. Unions also love big business.  Much easier to bully a big business into an agreement and than with lots of small to medium businesses competing with each other.

Government moans about industry concentration even as its policies incentivise and force amalgamations. Euphemisms like fairness, progressivism, people over profits, and fair taxation disguise what is a creeping mix of state monopoly capitalism and central planning.

The GST distribution system, otherwise known as Horizontal Fiscal Equalisation, is the manifestation of Karl Marx’s doctrine of from each according to his ability, to each according to his needs. Through it, taxes taken from the productive states of NSW and Western Australia are transferred to Tasmania, South Australia, Victoria, the Northern Territory, and the ACT. These are jurisdictions for whom economic reform means demanding more money from NSW and WA.

Commonwealth debt current sits at just under $1 trillion. This is an impressive position given that debt was essentially zero some 19 years ago. The states and territories hold another $600 billion amongst themselves. When Commonwealth, state, and territory debt is added together, that is a combined average of $60,000 for every man, woman, and child in this country. Nearly a quarter of a million dollars for a family of four. This is debt that needs to be serviced and eventually repaid, meaning that an increasing proportion of tax revenue is for paying interest.

At the Commonwealth level, and for several of the states and territories, interest payments on debt are the fastest growing items in their budgets. A downgrade of the Commonwealth’s credit rating is yet not imminent, but it is not inconceivable either. But a ratings drop would drive up borrowing costs, force higher taxes or lower services, and risk triggering a debt spiral, a self-reinforcing cycle where new debt is taken on simply to service existing debt. Downgrades would flow to the states and to banks, lifting mortgage rates and further exposing state budgets. Imagine the cost-of-living impacts when both mortgage rates and tax rates rise simultaneously. But Australia’s destiny is not fixed. It can be reversed. The longer we wait, however, the harder it will get.

In 1964, Ronald Reagan said: “You and I have a rendezvous with destiny. We will preserve for our children this, the last best hope of man on earth, or we will sentence them to take the last step into a thousand years of darkness.” To fix the economy, we must first fix our mindset. But like any addict, the first step is admitting the problem.

The solutions are not mysterious. They are well understood and proven. They require less government and less of government. What is required is a political class willing to end its passion for central planning and allow the Australian people to innovate and create, as they were permitted to do when Australia was the economic miracle of the developed world, rather than what it is becoming today – the sick man of Asia.

We need genuine spending reform. Not a slight slowing of growth but a real reversal. Middle-class welfare must be eliminated. The fifteen off-budget funds must be liquidated, with proceeds used to pay down debt. The NDIS must be brought under control and all the fiscal and productivity consequences that it brings. We need tax cuts that actually reduce government revenue, not the nonsensical revenue-neutral reforms sought by the Treasurer.

We need a significant program of deregulation and an equivalent reduction in regulators. Reducing regulation without a reduction in regulators is simply an invitation for regulations to creep back later.

We need fewer public servants. There are currently 390,000 Commonwealth public servants whose salaries cost $41 billion and rising. Strip out the service delivery personnel in military, border security, national security, and federal police, and there would be at least 150,000 people pushing paper and shuffling money. And that does not include the consultants and contractors engaged by the Commonwealth.

We need a new privatisation program. Australia Post, NBN, Snowy Hydro, Western Sydney Airport with proceeds to pay down debt. These are not core government functions, and pretending otherwise costs us money we do not have. And dare I say it; something needs to be done about the ABC and SBS.

We need industrial relations reform and an honest conversation about HECS, the school curriculum, and immigration settings and their interaction with housing costs. And most importantly, we need to elect serious people, and fewer reality television celebrities.

So, in wrapping up, please let me leave you with this. A nation that cannot control its spending will eventually lose control of its future. A nation that rewards dependency over enterprise will get more of the former and less of the latter. And a nation that elects performers over reformers deserves exactly the government it gets.

Australia is not a poor country pretending to be rich. It is a rich country slowly making itself poor. That is a choice. And choices can be reversed, but only by people willing to make different choices.